My prescription for health reform expands on the themes of tax reform, Medicaid, and physicians’ annual adventures with their own congressionally imposed fiscal cliff.
Dysfunction and partisan bickering in Washington, DC has led to the nation approaching and plummeting off the proverbial fiscal cliff (even if only for a day). But the national conversation over tax rates, tax deductions, loopholes, and government spending has surprisingly been devoid of discussion of the tax exclusion of employer sponsored health insurance.
This overwhelmingly popular tax provision results in lost revenue to the federal government on the order of over $150 billion per year. While many wish to cling to this World War II-era provision of the tax code, economists and the brightest minds in the health policy sphere realize that in today’s world, the tax exclusion of employer sponsored health insurance leads to overconsumption of health care and is structured in a regressive manner.
A poignant example comes from the Tax Policy Center. Consider three workers at the same firm with a monthly health insurance premium of $1,000. The cost for a worker in the 25% tax bracket would be only $597 in after-tax dollars (factoring in payroll taxes), while the cost for a worker in the 15% bracket would be $697, and for a low wage worker receiving the earned income credit the real cost would actually be more than what the employer pays ($1,247).
Not only does the current structure of the tax exclusion for employer sponsored health insurance drive over-utilization of health care for those with greater income, individuals purchasing health insurance outside of an employer plan do not receive any tax benefit.
The solution to this problem is simple. When the 113th Congress takes up comprehensive tax reform, the tax exclusion for employer-sponsored health insurance should be replaced with a tax credit, refundable for those with zero or negative tax liability, of a size equal to the “cadillac tax” on expensive health plans set to begin in 2018. Therefore, this tax credit would make the unpopular “cadillac tax” – a 40 percent surcharge on health insurance plans costing more than $10,200 for individuals or $27,500 for families – unnecessary. Hereafter, any health insurance plan more expensive than the credit, would simply be taxed at an individual’s marginal tax rate in the progressive manner our current income tax law allows.
A second priority for the new year involves protecting Medicaid, the vehicle for health reform The governors of Alabama, Georgia, Louisiana, Maine, Mississippi, South Carolina, South Dakota, Oklahoma, and Texas have all declared that their states will not be expanding Medicaid in 2014. That means nearly 5 million low-income Americans (about one-third of the total eligible population) will miss out on the Affordable Care Act’s Medicaid expansion.
Physicians, safety-net providers, and others serving this patient population must aggressively advocate in order to get these governors, and others leaning towards similar decisions, to change course.
Lastly, the perennial medical fiscal cliff known as the “doc-fix” has to stop. In the past, I have argued for replacing the entire Medicare physician fee schedule with a prospective payment system. Until that can be accomplished, perhaps an intermediate step can be to freeze the physician fee schedule at current levels, repeal the sustainable growth rate, and provide annual payment increases based purely upon physician performance on quality metrics.
Over time, increasing payments for quality will serve as pay raises for physicians in Medicare while simultaneously focusing efforts on quality of care. As the amounts of these bonus payments magnify, quality of care will weigh heavier in physicians’ minds than simply the quantity of care.
Cedric Dark, MD, MPH